By Marta Vilar – MADRID (Econostream) – Econostream’s ECB Tone Meter showed the Governing Council becoming less dovish this week, while the Executive Board moved back into slightly dovish territory.

The Governing Council index rose slightly to -0.09 from -0.13, while the Executive Board index fell to -0.06 from 0.00. Communication around the Iran conflict pushed the overall tone toward neutral, as policymakers stressed the need to avoid drawing premature conclusions about its impact on the economic outlook.

Biggest Movers of the Week: Lane, Nagel and Schnabel

One of the first Governing Council members to comment in detail on the Iran conflict was Chief Economist Philip Lane, who told the Financial Times that the Middle East tensions could have an inflationary impact in the short term while also weighing on growth.

Deutsche Bundesbank President Joachim Nagel urged caution against making early predictions about the conflict, describing such speculation as “not helpful,” and said he expected the immediate impact to be felt more on inflation than on economic growth.

Executive Board member Isabel Schnabel sounded somewhat hawkish, warning that firm demand and tight labor markets posed medium-term upside risks to inflation.

While ECB President Christine Lagarde limited her remarks to saying the ECB was “in a good place” to monitor developments, Vice President Luis de Guindos was more explicit, saying the baseline scenario assumed a short-lived conflict and noting that markets had reacted in an “orderly” manner.

Dominant Themes in this Week’s Communication: Caution About Early Predictions—Except Villeroy

Starting with Central Bank of Ireland Governor Gabriel Makhlouf and National Bank of Belgium Governor Pierre Wunsch, many policymakers emphasised that it was “too early” to assess the conflict’s impact on the outlook and warned that the ECB should “not rush” to conclusions.

However, Banque de France Governor François Villeroy de Galhau, who initially echoed this cautious stance earlier in the week, later said he saw “no reason today why we should raise interest rates.”